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small business taxes /
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Tax Benefits: What Is the Federal Opportunity Zone Incentive Program?

April 10th, 2024 | 4 min. read

By Bryan Cremeen

As a small business owner – or a prospective small business owner – you keep an eye out for business opportunities. That’s why when you first heard about federal Opportunity Zones (OZs) offering a unique tax benefit, you needed to learn more.

At CSI Accounting & Payroll, we’ve worked with year-round small business tax strategy for over 50 years. We’ve seen business owners make a lot of moves to try to improve their tax outlook, so we know which strategies usually work – and which usually don’t.

Small business owners who want to know more about federal Opportunity Zones often ask:

  • What is the Opportunity Zone incentive program? Is it a tax credit?
  • Is this a good opportunity for small businesses?

Is the Federal Opportunity Zone Program a Tax Credit?

Federal Opportunity Zones are designated areas in the United States that are typically low-income or underdeveloped areas. The government incentivizes businesses to invest in OZs to stimulate economic development and job creation in the area.

This program is not a tax credit, but it is a tax benefit. That means it isn’t a credit claimed toward your taxes, but there is a tax benefit that can be applied if you commit to the program until the investment is sold or until December 31, 2026 – whichever comes first.

What is that tax benefit? Well, you know how you’re taxed on capital gains when you sell your business? 

With this program, you can defer the capital gains tax by reinvesting the gains into a Qualified Opportunity Fund (QOF) – a specific fund, typically a corporation or partnership, that invests in OZs and has at least 90% of its assets in them – within a certain timeframe (typically 180 days).

Is the Federal Opportunity Zone Incentive Program Ideal for Small Businesses?

Businesses of any size can take advantage of this opportunity. That’s why small business owners want to know if this can be beneficial to them – or if this is really only a good opportunity for large businesses. It depends.

The tax benefit is tempting, but it’s very difficult to find growth – much less, success – in low-income or underdeveloped areas. This is especially true as a small business or a startup with little to fall back on.

Let’s say you put your capital gains into a QOF. That means you can’t touch that money until the investment is sold or until December 31, 2026. This is long-term and can easily create a cash flow issue, which is major to small businesses.

This program can offer opportunities that small businesses might not otherwise have, but due to these large risks, there’s a low chance that a small business would participate. It’s more likely to be used by investors with a lot of capital or a hedge fund.

How would we advise a client? If they mentioned this opportunity, we would try to find their motivation. Are they concerned about their tax liability? Are they looking for new opportunities to boost their profits

Regardless, we would already know their business inside and out and could have a conversation to find other opportunities that better suit their business’s situation and goals.

Find Your Ideal Business Opportunities and Savings

Now that you know about what the Opportunity Zone incentive program is and how it’s a unique opportunity despite having high risks, are you ready to check out monthly accounting services to discuss future opportunities that will best suit your business?

If so, please consider CSI Accounting & Payroll! To see if we can be a good fit for your business, click the button below for a free consultation:

Not ready to talk? That’s okay! First, learn more about the different types of advice that a monthly accountant can offer by clicking the image below:

Bryan Cremeen

Bryan joined CSI Accounting in 2019. He joined the team after CSI purchased his accounting firm, AccountSource LLC, which he had owned since 2005. He graduated from St. Cloud State in 2001 with a Bachelor's Degree in Accounting and has been an Enrolled Agent since 2010. Before owning his own accounting practice, Bryan had worked at the State of MN handling financial reporting and had been in private industry as a Controller. His primary responsibilities include overseeing the accounting department and making sure clients are receiving quality service. Fun Fact: Bryan has played soccer since the age of 4. He still plays soccer year round through various adult leagues and is an avid supporter of the Minnesota United MLS soccer team. COYL!!! (Come on, you Loons!!!)